BEIJING: As Chinese authorities struggle to contain runaway home prices, a long-awaited plan for a property tax has stalled, the latest sign of entrenched interests impeding efforts to transform the country’s growth model. The average price of a Shenzhen home last year was 41 times the average income, against 29 in London, 23 in Tokyo and 15 in New York, according to Macquarie Securities. Since late last year, 45 Chinese cities have introduced purchase limits and other measures in an attempt to cool rising property prices.
For years, economists have advocated for China to move away from administrative tools like purchase bans in favour of a property tax. Top Communist party leaders committed to imposing a property tax in a landmark blueprint for economic reform approved in November 2013. By imposing an annual levy on home ownership, a property tax would reduce the appeal of housing as a speculative investment. While the merits of property taxes in general are a matter of debate among economists, few doubt that is sorely needed in China, where 50m homes lie empty, according to the China Household Finance Survey conducted by researchers from Southwestern University of Finance and Economics in Chengdu.
Yet market observers say there is little prospect of the government implementing a tax within the next few years — at the annual session of China’s rubber-stamp parliament in March it was announced that legislation for the levy was not on the agenda this year. “Among well-informed economists in the government, establishing a property tax has been consensus for a long, long time,” says Gan Li, director of the CHFS and professor of economics at Texas A&M University. “The concern is politics. No one wants to be blamed for bursting the housing bubble.”
China’s home ownership rate is 87 per cent, according to the survey — creating a large and powerful constituency opposing a property tax. In the US, the rate is only 64 per cent, according to census data. A survey by FT Confidential Research, an independent research service owned by the Financial Times, found that 28 per cent of families in medium-sized and large cities own a home that is vacant. Chinese investors have long favoured housing over the volatile stock market and low-yielding bond market, and capital controls limit households’ ability to buy foreign assets.
